24 September 2012
Previous Blog – Paypal at POS
Just met with an institutional investors who was really high on Paypal @POS.. here is his recap of Paypal’s pitch:
Amazon is the enemy let me help you compete with them. We can help you with our marketplace to position your product, with our payments to pay for it, with GSI to help you distribute your orders and manage it for you, with our new tools to help you engage the customer before or during their [physical] shopping. We don’t want to compete against Visa, we want to help you compete against Amazon.
– 180bps for payment
Wow what a great deal.. no wonder they have 6 sales people working full time on it at PayPal. I asked Fred how this works for JambaJuice or HomeDepot neither of which do much online sales..
Here are 4 scenarios… let’s see if PayPal works in any of them
1) Best Buy. $1000 big screen … but only $800 on Amazon
2) Home Depot. 8 2x4s, 5 bags of mulch and a new drill
4) Grocery store.
Scenario 1 – Best Buy
How did the customer decide on the product? Did the customer go into best buy to see it? Did Best Buy’s team influence the customer in the sale?
If the customer has decided on the product independent of best buy it will be hard for any retailer to win them separate from price. PayPal can’t possibly help BestBuy on price, actually its online marketplace competes with BestBuy.. as many other merchants sell there too. Does BestBuy really want it’s brand in the eBay flea market? Doesn’t a manufacturer direct model make more sense here? What value is Best Buy bringing?
It would also seem very difficult for eBay to help BestBuy EVER compete on price, particularly when it is charging 180bps for payment and up to 9% in sales fees (http://pages.ebay.com/help/sell/fees.html) for its marketplace.. It is actually 4x the cost of Visa.
The only circumstance I can identify, where eBay can assist in sales, is when a customer is searching for a product, and BestBuy has the lowest price, will they be able to assist. However, consumers don’t leverage eBay for price comparison shopping.. they use other tools like Google particularly when looking for merchandise in a nearby physical store (see Google Local Support).
Can eBay assist in guiding a consumer to a product? Keys are content, touch and brand. Do consumers normally go to eBay to research products? Do consumers normally trust the eBay brand to give them good shopping recommendations (online and offline)? Again I don’t see how eBay or Paypal can play in the shopping experience until a consumer has selected a product. If selection is made what services do they have to help in completing the purchase? A: Payment… However payment does not drive product selection or purchase decision, it is a just the last phase of a long process.
Could Paypal uniquely deliver incentives to the consumer during the product selection process to influence them? sure… so could Santa Claus and ShopKick (both equally real) .. but this is not what PayPal does today so PayPal must first build credibility to establish a NEW customer behavior pattern. Paypal today does not do advertising, they do not do physical POS purchases, nor do they do enterprise sales, … in general consumers just don’t care about the PayPal brand off line. Sure, Paypal could invest to establish itself in each of these areas. But these are not trivial investments, it takes tremendous marketing investment to change consumer behavior. Little Square ($8B TPV) has more than 8x of PayPal’s POS volume… which today is primarily driven by their Masterdcard debit (only works against a balance with PayPal).
I was planning to go through 3 more scenarios.. but what is the point? How can PayPal help any physical merchant? eBay’s only asset here is a consumer account.. they may make the point that 100M consumers have a PayPal app loaded on their smart phone.. well that does not equate to usage for payment (rather balance checking)… and it certainly does not equate to usage for shopping.
Top 20 retailers take the view ” we just won Durbin.. we have $0.21 payments… we can steer… why on earth would we want to accept any other form of payments and confuse customer, or our efforts to encourage debit?”
Neither PayPal nor eBay drive sales of traditional retail. For small retailers they are a hero.. giving massive distribution to unique goods. To traditional retailers: they are a flea market that further dilutes your brand and puts emphasis back on price.
Why are retailers playing in the sandbox with paypal.. ? A: To experiment (at someone else’s expense)..
I’m open to comments..
Footnotes. Based on 2012 reporting earnings
- Marketplaces on average charges 9% commission on transaction volume (for 2011, 10.4% in US and 8.2% International). Volume sellers will receive discount (could be 20% or higher) on final value fees (and other fees).
- PayPal Regular rate is 2.9% + $0.30/transaction, can go down to 2.2% + $0.30